The 2016 Philippine Investment Guide

The Philippines has enjoyed robust economic growth the past 5 years and analysts expect the growth to be sustained in the coming years.

In 2013, the country’s Gross Domestic Product (GDP) grew by 7.2%. GDP expansion slowed to 6.1% in 2014, but this was good enough compared to the other Asia Pacific economies—only China recorded a higher growth rate than the Philippines.

As of late 2015, GDP growth is forecast to be within the range of 5.5% to 5.9% amidst the slump in the global economy brought about by a slowdown in China’s growth. GDP growth within this range will still put the Philippine economy among the top 3 highest growing economies in Asia Pacific. For 2016, the consensus growth projection is from 6.0% to 6.3%.

The high economic growth, rising tax collections, and overall prudent economic management by the Philippine government has led to successive upgrades of the country’s credit ratings by the top global rating agencies. In October 2015, Standard and Poor’s cited the Philippines as the world’s strongest emerging market. As of late 2015, the Philippines has received the following credit ratings from the top global rating agencies:

2016 is a crucial year for the Philippines as it undergoes another round of national and local elections. As of December 2015, it appears that all of the candidates for president who have ranked within the top 4 in national electoral surveys have affirmed their resolve to continue the policies that have contributed to the growth of the economy: a liberal economy, prudent fiscal governance and deficit reduction, wider engagement with the global economy, and continued infrastructure privatization.

Among the top drivers of the Philippine economy is the massive foreign currency remittance of overseas Filipino workers (OFW). In 2014, OFWs remitted US$26.97 billion. The 2015 remittances will likely exceed US$27 billion and will continue to support the steady increase in national consumer spending.

The Philippines’ service sector dominates the economy. Close to 60% of the country’s GDP is attributable to services. One key contributor of the service sector is the information technology and business process outsourcing (IT-BPO) industry which is projected to enjoy an average 16% year-on-year growth in the next few years. In 2014, the IT-BPOs brought in US$18 billion in revenues. 2015 revenue is projected to be US$21 billion.

The manufacturing sector is also on therebound as foreign companies rush to establish their facilities in the country’s many special economic zones which reward exporters with preferential tax rates and attractive non-fiscal incentives. This has contributed to a growth in the value and volume of Philippine exports, more than 50% of which are electronic products and machinery.

Foreing Investments

A. Policy on Foreign Investments

Foreign investments are highly encouraged in the Philippines.

It is declared state policy to attract, promote, and welcome productive investments in activities which significantly contribute to national industrialization and socioeconomic development, to the extent the foreign investment is allowed by the Constitution and relevant laws.

Within this welcoming investment environment, investors are entitled to various basic rights, including the right to repatriation of investment, the right to remittance of earnings, and freedom from expropriation (except for public use or in the interest of national welfare and defense and upon payment of just compensation).

B. Foreign Equity and Participation

Foreign investment is permissible in all areas of investment, except in economic activities where the Philippine Constitution or existing laws prohibit or limit foreign equity to a specific percentage.

The law governing foreign participation in the economy is Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), which includes the Foreign Investment Negative List.

The FINL delineates:

  • Areas where foreign equity is prohibited or limited by mandate of the Constitution and specific laws  (List A);
  • and   Areas where foreign ownership is limited for security, defense, health, and moral reasons as well as to protect small- and medium-scale enterprises (List B).

List A may be amended any time to reflect changes in the law on foreign equity participation in any specific area of economic activity. Amendments to List B may be not be made more often than once every 2 years. The current FINL, promulgated on May 29, 2015.

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